Is it really turning?

us eu china

EURUSD carved out a 2-week high at 1.1280, making this the third consecutive up day the pair has seen. The new high has largely been the product of general Dollar softness today.

There doesn’t appear to be a specific catalyst, with the news churn so far today focusing on Brexit and EU-China trade talks, the latter of which have reportedly been successful, along with President Trump’s restating his threat to tariff US imports of EU goods.

The US administration proposed tariffs worth USD 11 bln on goods ranging from jetliners and passenger helicopters to cheese, wine, ski-suits and motorcycles. The US argues this is a response to the EU’s subsidies to Airbus, a rival to Boeing Co, after the WTO found that Airbus aid has “repeatedly” caused “adverse effects to the United States”. The renewed threat comes at a time when EU members are negotiating the position of the Commission in the upcoming talks on industrial tariffs with the Trump administration.

They also come a day ahead of the Emergency summit on Brexit, and while the US measures seem relatively tame compared to the threats of auto tariffs and the tariff war with China, they will act as a reminder that exports are likely to continue to decline, with the globalisation trends being reversed.

Meanwhile, EU and China present united front as Trump steps up pressure on the EU. There were some divisions on trade during the meeting, but both sides managed to reach a last minute accord with China reportedly making concession on a wording about industrial subsidies that removed a European veto threat. So there will be a joint statement for today’s summit in Brussels after all. Meanwhile, the threats may also play into the hands of the Brexiteers in London, who want to see the UK pursuing its own trade strategy.

EURUSD’s gain has extended the rebound from the 1.1210 low seen in the wake of the US strong jobs report last Friday, but tepid earnings growth, which supported Wall Street but pressured Treasury yields, has in turn kept a lid on the Dollar.

The market is also looking to tomorrow’s release of US March CPI data given that the Fed’s recent dovish turn has been largely hinged on a benign outlook for inflation. The headline CPI is expected to rise 0.4% m/m in March, after a 0.2% reading in February, and to 1.9% y/y, up from 1.5% in the month prior.

The recent pickup of EURUSD breached Resistance at the 20-day SMA, at 1.1280-1.1285 area. After yesterday’s strong bullish candle, a close today above this barrier could strengthen the positive bias in the near term, in contrast with the longterm slip.

The short term momentum indicators present a positive sentiment , with MACD lines decreasing in the negative terrain, while RSI is retesting the neutral zone after its rebound away from 35 low. A clear view of the optimistic indicators could be identified in the 4-hour chart, with a bull cross on MACD. On the break of 1.1280, the pair could find its next Resistance at 1.1315 (50-day EMA and 50% retracement from March downleg). The 1.1350 could act as a reversal point as it reflects the 61.8% Fibonacci retracement level. A pullback could find immediate Support at 1.1250, while next one stands at 1.1205 (Thursday’s low).

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Andria Pichidi

Market Analyst

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